Form 14A Preliminary Proxy
April 1, 2001
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: St. Mary Land & Exploration Company
File No. 0-20872
Ladies and Gentlemen:
Transmitted herewith is St. Mary Land & Exploration Company's Proxy
Statement submitted on Schedule 14A. The Company intends to send the Proxy
Statement to its Shareholders' on or about April 15, 2002.
Very truly yours,
/s/ RICHARD C. NORRIS
Richard C. Norris
Vice President - Finance,
Secretary and Treasurer
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:
[ X ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] 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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April 12, 2002
Dear Stockholder:
You are cordially invited to attend the 2002 annual meeting of
stockholders, which will be held in the Tabor-Stratton Room of the Brown Palace
Hotel, 321 Seventeenth Street, Denver, Colorado on Wednesday, May 22, 2002 at
3:00 p.m. local time.
At the meeting you and the other stockholders will vote on the election
of nine directors and approval of an amendment to the certificate of
incorporation to authorize the issuance of up to a total of 5,000,000 shares of
preferred stock. You will also have the opportunity to hear reports on St.
Mary's operations and to ask questions of general interest. You can find other
detailed information about the meeting in the accompanying proxy statement, and
can find detailed information about St. Mary in the enclosed annual report.
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
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 22, 2002
To All Stockholders:
The 2002 annual meeting of the stockholders of St. Mary Land &
Exploration Company will be held in the Tabor-Stratton Room of the Brown Palace
Hotel, 321 Seventeenth Street, Denver, Colorado on Wednesday, May 22, 2002 at
3:00 p.m. local time. The purposes of the meeting are:
1. To elect nine directors to serve during the next year,
2. To vote on an amendment to the certificate of incorporation to
authorize the issuance of up to a total of 5,000,000 shares of
preferred stock with such powers, preferences, rights and
limitations as the board of directors may designate from time to
time, and
3. To transact any other business which may properly come before the
meeting.
Only stockholders of record at the close of business on April 5, 2002 may
vote at this meeting.
Please sign, date and return the accompanying proxy card in the enclosed
envelope as soon as possible. Any stockholder who returns their proxy can revoke
it at any time before the vote is taken at the meeting.
By Order of the Board of Directors
St. Mary Land & Exploration Company
/s/ RICHARD C. NORRIS
Richard C. Norris
Secretary
Denver, Colorado
April 12, 2002
Proxy Statement Table of Contents
Page
----
General.................................................................... 1
Purpose of the Annual Meeting.............................................. 1
Who Can Vote............................................................... 1
How to Vote................................................................ 1
Revoking a Proxy........................................................... 2
Quorum and Voting Requirements............................................. 2
Payment of Proxy Solicitation Costs........................................ 2
Election of Directors...................................................... 3
Nominees for Election as Directors......................................... 3
Board and Committee Meetings............................................... 4
Director Compensation...................................................... 6
Stock Ownership of Management.............................................. 7
Audit Committee Report..................................................... 8
Executive Compensation..................................................... 9
Summary Compensation Table................................................. 9
2001 Option Grants......................................................... 10
Aggregated Option/SAR Exercises in 2001.................................... 10
Report of the Compensation Committee on Executive Compensation............. 11
Retirement Plans........................................................... 13
Performance Graph.......................................................... 14
Employment Agreements and Termination of Employment and Change-in-Control
Arrangements............................................................ 15
Certain Relationships and Related Transactions............................. 15
Other Matters to be Voted On............................................... 16
Section 16(a) Beneficial Ownership Reporting Compliance.................... 18
Independent Accountants.................................................... 18
Future Stockholder Proposals............................................... 18
Other Matters.............................................................. 19
Annex A: Certificate of Amendment to the Restated Certificate of
Incorporation.......................................................... 20
Annex B: St. Mary Charter of the Audit Committee........................... 23
St. Mary Land & Exploration Company
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
(303) 861-8140
Proxy Statement
------------------------
General
This proxy statement contains information about the 2002 annual meeting of
stockholders of St. Mary Land & Exploration Company to be held in the
Tabor-Stratton Room of the Brown Palace Hotel, 321 Seventeenth Street, Denver,
Colorado on Wednesday, May 22, 2002 at 3:00 p.m. local time. The St. Mary board
of directors is using this proxy statement to solicit proxies for use at the
annual meeting. In this proxy statement "St. Mary" and "the Company" both refer
to St. Mary Land & Exploration Company. This proxy statement and the
enclosed proxy card are being mailed to you on or about April 15, 2002.
Purpose of the Annual Meeting
At the Company's annual meeting, stockholders will vote on
o the election of directors as outlined in the accompanying notice of
meeting,
o to approve an amendment to the certificate of incorporation to
authorize the issuance of up to a total of 5,000,000 shares of
preferred stock with such powers, preferences, rights and limitations
as the board of directors may designate from time to time, and
o on any other business that properly comes before the meeting.
As of the date of this proxy statement, the Company is not aware of any
business to come before the meeting other than the items noted above.
Who Can Vote
Only stockholders of record at the close of business on the record date of
April 5, 2002 are entitled to receive notice of the annual meeting and to vote
the shares of St. Mary common stock they held on that date. As of April 5, 2002,
there were 27,808,151 shares of St. Mary common stock issued and outstanding.
Holders of St. Mary common stock are entitled to one vote per share and are not
allowed to cumulate votes in the election of directors. The enclosed proxy card
shows the number of shares that you are entitled to vote.
How to Vote
If your shares of St. Mary common stock are held by a broker, bank or other
nominee (in "street name"), you will receive information from them on how to
instruct them to vote your shares.
If you hold shares of St. Mary common stock in your own name (as a
"stockholder of record"), you may give instructions on how your shares are to be
1
voted by marking, signing, dating and returning the enclosed proxy card in the
accompanying postage-paid envelope.
A proxy, when executed and not revoked, will be voted in accordance with
its instructions. If no instructions are given, proxies will be voted FOR
management's slate of directors and the amendment to the certificate of
incorporation to authorize the issuance of preferred stock.
Revoking a Proxy
You may revoke a proxy before the vote is taken at the meeting by:
o submitting a new proxy with a later date,
o by voting at the meeting, or
o by filing a written revocation with St. Mary's corporate secretary.
Your attendance at the annual meeting will not automatically revoke your
proxy.
Quorum and Voting Requirements
A quorum of stockholders is necessary to hold a valid meeting. A quorum
will exist if stockholders of one-third of the outstanding shares of common
stock are present at the meeting in person or by proxy. Abstentions and broker
"non-votes" count as present for establishing a quorum. A broker non-vote occurs
on a matter when a broker is not permitted to vote on that matter without
instruction from the beneficial owner of the shares and no instruction is given.
Shares held by St. Mary in its treasury are not entitled to vote and do not
count toward a quorum. If a quorum is not present, the meeting may be adjourned
until a quorum is obtained.
The affirmative vote of a majority of shares entitled to vote at the
meeting will be required to amend the certificate of incorporation to authorize
the issuance of up to a total of 5,000,000 shares of preferred stock with such
powers, preferences, rights and limitations as the board of directors may
designate from time to time. If a quorum is present, the affirmative vote of a
majority of shares represented in person or by proxy will be required to elect
the directors and to decide any other matter which may properly be submitted to
a vote at the meeting. Accordingly, any shares present but not voted, including
abstentions and broker non-votes, will have the same effect as shares voted
against approval.
Payment of Proxy Solicitation Costs
St. Mary will pay all costs of soliciting proxies. The solicitation will be
made by mail. In addition to mailing proxy solicitation material, St. Mary
officers, directors and employees may also solicit proxies in person, by
telephone, or by other electronic means of communication. St. Mary will ask
banks, brokers, other institutions, nominees, and fiduciaries to forward the
2
proxy material to their principals and to obtain authority to execute proxies.
St. Mary will reimburse them for expenses.
ELECTION OF DIRECTORS
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 but one of whom are currently serving in that capacity.
The board of directors as a whole acts as the nominating committee,
selecting the director nominees. The board performed its nominating committee
functions during the course of regular meetings of the full board of directors
in early 2002. They will consider suggestions by stockholders of possible future
nominees. Such suggestions should be delivered on or before November 1 in any
year before the next annual meeting. In addition, St. Mary's by-laws permit
stockholders to nominate directors for election at an annual meeting, provided
that advance written notice of the nomination containing the information
required under the by-laws is received by the Secretary of St. Mary not less
than 75 days nor more than 105 days before the first anniversary date of the
immediately preceding annual meeting. Accordingly, proper notice of a
stockholder nomination for election as director at the 2003 annual meeting must
be received by St. Mary between February 6, 2003 and March 8, 2003.
The proxies will be voted in favor of the nominees unless a contrary
specification is made in the proxy. All nominees have consented to serve as
directors of the Company if elected. However, if any nominee is unable to serve
or for good cause will not serve as a director, the persons named in the proxy
intend to vote in their discretion for a substitute who will be designated by
the board of directors.
The board of directors recommends voting "For" electing the nominees.
NOMINEES FOR ELECTION AS DIRECTORS
Biographical information, including principal occupation and business
experience during the last five years, of each nominee for director is set forth
below. Unless otherwise stated the principal occupation of each nominee has been
the same for the past five years.
Director
Age Since
-------------------------------------------------------------------------------- ------------- ------------
Thomas E. Congdon has served the Company as an officer and director 75 1966
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 iron ore and agricultural products, manage marketable securities and
own and operate developed real estate.
-------------------------------------------------------------------------------- ------------- ------------
Mark A. Hellerstein joined the Company in September 1991 and served as 49 1992
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 served as Chairman of the Board of Summo Minerals, a publicly traded
copper mining company, from 1995 to 1998.
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Ronald D. Boone has served the Company as Executive Vice President since 54 1996
1990, as Chief Operating Officer since 1992 and as a director of the Company
since 1996.
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3
Director
Age Since
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Barbara M. Baumann is currently Executive Vice President and co-manager of 46 -
Associated Energy Managers LLC, a $100 million oil and gas private equity
fund. She has held that position since 2001. Ms. Baumann was employed for the
prior eighteen years by BP Amoco, most recently as the Commercial Operations
Manager in the Western Business Unit.
-------------------------------------------------------------------------------- ------------- ------------
Larry W. Bickle is currently Managing Director of Haddington Ventures, L.L.C., 56 1995
a private company that invests in midstream energy companies and assets. He
has held that position since June 1997. He is also a Director of Unisource,
Inc., the holding company for Tucson Electric. He was the founder and was
Chairman and Chief Executive Officer of TPC Corporation, a NYSE gas storage,
transportation and marketing company from 1984 to May 1997.
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William J. Gardiner was appointed to serve on the board of directors in 48 1999
December 1999, following St. Mary's acquisition of King Ranch Energy. Mr.
Gardiner is currently Vice President - Chief Financial Officer of King Ranch,
Inc. Before his employment with King Ranch in 1996, Mr. Gardiner served
as Executive Vice President and Chief Financial Officer of CRSS, Inc., a
publicly traded independent power producer. He was employed by CRSS for
approximately 20 years.
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Robert L. Nance has since 1969 served as President and Chief Executive 65 1999
Officer of Nance Petroleum Corporation, a wholly owned subsidiary of St. Mary
since June 1999. He was appointed to the board in November 1999. Mr. Nance
also serves on the boards of MDU Resources Group, Inc. and First Interstate
Bank - Montana
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Arend J. Sandbulte has served as a director of the Company since 1989. From 68 1989
1964 to 1996, he was employed by ALLETE, Inc. (formerly Minnesota Power),
a publicly-held diversified services company (including electric utility
services), most recently as its Chairman of the Board, President and Chief
Executive Officer, and continues as a director of this company, a position
to which he was first elected in 1983.
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John M. Seidl currently serves as an Executive of the Gordon and Betty 63 1994
Moore Foundation and Chairman of Language Line Services Inc. of Monterrey,
California, an Internet startup company headquartered in San Francisco. Mr.
Seidl has been a director of IOMEGA Corporation, a NYSE company, since 1999.
Mr. Seidl was also Chairman of CellNet Data Systems from 1994 through May
1999. In August 2000 CellNet Data Systems filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code as part of an acquisition of its
assets.
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BOARD AND COMMITTEE MEETINGS
The full board of directors met six times during 2001. No director attended
less than 75% of the board and committee meetings held during the director's
tenure on the board and its committees.
The board has an audit, business plan, compensation and executive
committee. The following table sets forth the members of each committee and the
number of meetings held in 2001:
4
------------------------ ---------------- ---------------- ---------------- ----------------
Name Audit Business Plan Compensation Executive
------------------------ ---------------- ---------------- ---------------- ----------------
Larry W. Bickle X
------------------------ ---------------- ---------------- ---------------- ----------------
Ronald D. Boone
------------------------ ---------------- ---------------- ---------------- ----------------
Thomas E. Congdon X X
------------------------ ---------------- ---------------- ---------------- ----------------
David C. Dudley X X
------------------------ ---------------- ---------------- ---------------- ----------------
William J. Gardiner X
------------------------ ---------------- ---------------- ---------------- ----------------
Mark A. Hellerstein X X
------------------------ ---------------- ---------------- ---------------- ----------------
Jack Hunt** X X
------------------------ ---------------- ---------------- ---------------- ----------------
Robert L. Nance
------------------------ ---------------- ---------------- ---------------- ----------------
Arend J. Sandbulte X X* X* X
------------------------ ---------------- ---------------- ---------------- ----------------
John M. Seidl X*
------------------------ ---------------- ---------------- ---------------- ----------------
No. of Meetings in 2001 6 0 2 3
------------------------ ----------------- --------------- ---------------- ----------------
* Chairperson
** Mr. Hunt has decided to not stand for re-election to the board of directors.
The audit committee assists the board in fulfilling its responsibilities
for financial reporting by the Company. The audit committee recommends the
engagement and discharge of independent auditors, reviews the quarterly
financial results and directs and supervises special investigations when
necessary. The committee 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 adequacy of St.
Mary's system of internal accounting controls. See the "Audit Committee Report"
contained in this proxy statement.
The business plan committee reviews and reports to the board on St. Mary's
long range financial planning, capital structure, capital expenditures and risk
management.
The compensation committee's 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 the "Report of Compensation Committee on Executive
Compensation" contained in this proxy statement.
The executive committee is vested with the authority to exercise the full
power of the board of directors, within established policies, in the intervals
between meetings of the board of directors. In addition to the general authority
vested in it, the executive committee may be vested with specific power and
authority by resolution of the board of directors.
Other than the following arrangements for Jack Hunt, a current director who
has decided to not stand for re-election to the board of directors, and William
J. Gardiner, there are no arrangements or understandings between any director
and any other person pursuant to which that director was or is to be elected.
5
Under the merger agreement for the acquisition by St. Mary of King Ranch Energy,
Inc. which was completed in December 1999, St. Mary agreed to:
o appoint Mr. Hunt and Mr. Gardiner to the board of directors, and
o until March 31, 2001 use reasonable efforts at the time of each
annual meeting of stockholders to cause Mr. Hunt and Mr. Gardiner to
be elected to the board of directors. With the expiration of this
agreement, Mr. Hunt has decided not to stand for re-election.
DIRECTOR COMPENSATION
Employee directors do not receive additional compensation for serving on
the board of directors or any committee. Each non-employee director receives
1,200 shares of St. Mary common stock per year for serving as a director and is
paid $750 for each meeting attended. Non-employee directors serving on a
committee are paid $600 for each committee meeting attended and $375 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. Non-employee directors currently receive a total number of options
each year equal to the average number of options granted to the two most senior
employees of the Company divided by six. These options have an exercise price
equal to the fair market value of St. Mary common stock on the date of grant 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. For 2001, each non-employee director
was granted under this arrangement an option to purchase 6,542 shares of St.
Mary common stock at an exercise price of $21.19 per share.
6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows beneficial ownership of shares of St. Mary common
stock as of April 5, 2002 by each director and director nominee, each of the
executive officers named in the Summary Compensation Table, and all directors,
director nominees and executive officers as a group. To the best of St. Mary's
knowledge, as of April 5, 2002 there was no beneficial owner of more than 5% of
the outstanding shares of St. Mary common stock.
--------------------------------------------- --------------- --------------- --------------- ---------------
Shares
beneficially Options
owned exercisable Total shares Percent
excluding within beneficially beneficially
Name and Position of Beneficial Owner options 60 days owned(1) owned
--------------------------------------------- --------------- --------------- --------------- ---------------
Barbara M. Bauman, Director Nominee - - - -
--------------------------------------------- --------------- --------------- --------------- ---------------
Larry W. Bickle, Director 25,200 18,914 44,114 < .1%
--------------------------------------------- --------------- --------------- --------------- ---------------
David C. Dudley, Director (2) 177,842 23,238 201,080 .7%
--------------------------------------------- --------------- --------------- --------------- ---------------
William J. Gardiner, Director 3,600 6,518 10,118 < .1%
--------------------------------------------- --------------- --------------- --------------- ---------------
Jack Hunt, Director 3,600 6,518 10,118 < .1%
--------------------------------------------- --------------- --------------- --------------- ---------------
Arend J. Sandbulte, Director (3) 21,166 18,914 40,080 .1%
--------------------------------------------- --------------- --------------- --------------- ---------------
John M. Seidl, Director 5,600 21,126 26,726 .1%
--------------------------------------------- --------------- --------------- --------------- ---------------
Robert L. Nance, Director (4) 341,069 26,437 367,506 1.3%
--------------------------------------------- --------------- --------------- --------------- ---------------
Thomas E. Congdon, Chairman and Director (5) 162,708 58,964 221,672 .8%
--------------------------------------------- --------------- --------------- --------------- ---------------
Mark A. Hellerstein, President, Chief 33,710 66,239 99,949 .4%
Executive Officer and Director
--------------------------------------------- --------------- --------------- --------------- ---------------
Ronald D. Boone, Executive Vice President, 10,565 73,393 83,958 .3%
Chief Operating Officer and Director
--------------------------------------------- --------------- --------------- --------------- ---------------
Richard C. Norris, Vice President - Finance, 18,717 42,214 60,931 .2%
Secretary and Treasurer
--------------------------------------------- --------------- --------------- --------------- ---------------
Douglas W. York, Vice President - 4,573 23,141 27,714 .1%
Acquisitions and Engineering
--------------------------------------------- --------------- --------------- --------------- ---------------
Milam Randolph Pharo, Vice President - Land 1,696 32,841 34,537 .1%
and Legal
--------------------------------------------- --------------- --------------- --------------- ---------------
All executive officers and directors as a 873,331 445,656 1,318,987 4.7%
group (15 persons including those named
above)
--------------------------------------------- --------------- --------------- --------------- ---------------
(1) According to SEC rules, beneficial ownership includes shares as to which
the individual or entity has voting power or investment power and any
shares which the individual has the right to acquire within 60 days of
April 5, 2002 through the exercise of any stock option or other right.
(2) Includes 134,232 shares which represents 10.4% of the total number of
shares of common stock owned by Greenhouse Associates, in which Mr.
Dudley and his minor children are members, and 6,000 shares held by his
spouse.
(3) Includes 800 shares held of record by the spouse of Arend J. Sandbulte as
to which he may be deemed to be the beneficial owner.
(4) Includes 2,000 shares held of record by Ronan, Inc., a corporation
controlled by Robert L. Nance, and 69,100 shares held of record by the
spouse of Mr. Nance.
(5) Includes 24,410 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 18 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
or the approval of a significant transaction.
7
AUDIT COMMITTEE REPORT
The audit committee of the board is responsible for providing
independent, objective oversight of the Company's accounting functions and
internal controls. The audit committee is composed of three directors, each of
whom is independent as defined by the Nasdaq listing standards. The audit
committee operates under a written charter approved by the board of directors. A
copy of the charter is attached to this Proxy Statement as Annex B.
Management is responsible for the Company's internal controls and
financial reporting process. The independent accountants are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with generally accepted auditing standards and issuing
a report thereon. The audit committee's responsibility is to monitor and oversee
these processes.
In connection with these responsibilities, the audit committee met with
management and the independent accountants to review and discuss the December
31, 2001 financial statements. The audit committee, also discussed with the
independent accountants the matters required by Statement on Auditing Standards
No. 61, Communication with audit committees.
The audit committee also received written disclosures from the
independent accountants required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, and the audit committee
discussed with the independent accountants that firm's independence. The Company
paid the following fees to the independent accountants for the audit of the
consolidated financial statements and for other services provided in the year
ended December 31, 2001.
Audit Related Fees..........................$ 90,000
All Other Fees............................... 19,095
-------
Total Fees..................................$109,095
Fees for services other than the annual audit were primarily related to
the audit and review of St. Mary's benefit plans. The audit committee has
concluded that the provision of these non-audit services is compatible with
maintaining the accountants' independence.
Based upon the audit committee's discussions with management and the
independent accountants, and the audit committee's review of the representations
of management and the independent accountants, the audit committee recommended
that the board of directors include the audited consolidated financial
statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001 filed with the SEC.
THE AUDIT COMMITTEE
John M. Seidl, Chairman
Larry W. Bickle
Arend J. Sandbulte
8
EXECUTIVE COMPENSATION
In addition to salaries, the Company has granted stock options to
executive management and selected other personnel. These individuals also
participate with other members of management in a net profits interest bonus
plan and with selected other employees in the prior stock appreciation rights
("SARs") plan. All employees are eligible to participate in the Company's cash
bonus plan. See the "Report of the Compensation Committee on Executive
Compensation" beginning on page 11 of this proxy statement.
The following table sets forth the annual and long term compensation
received during each of the Company's last three years by the Chief Executive
Officer of the Company and by the four other highest compensated executive
officers of the Company during 2001.
SUMMARY COMPENSATION TABLE
-------------------------------- ----------------------------------------------------------------------
Long-Term Compensation
Annual Compensation Awards
----------------------------------- ------------------------
Other annual All other
Name and Compensation Options/ compensation
principal position Year Salary($) Bonus (2) ($) (1) SARs (#) ($) (1)
-------------------------------- --------- ----------- ----------- ----------- ----------- ------------
Mark A. Hellerstein 2001 $291,667 $ - $798,586 21,766 $13,939
President and Chief 2000 277,333 80,427 133,741 24,791 20,613
Executive Officer 1999 263,667 131,835 181,752 26,874 19,444
-------------------------------- --------- ----------- ----------- ----------- ----------- ------------
Ronald D. Boone 2001 233,667 - 670,028 17,486 10,550
Executive Vice President 2000 222,000 64,380 120,446 19,833 15,424
and Chief Operating Officer 1999 211,000 105,500 154,606 21,520 14,506
-------------------------------- --------- ----------- ----------- ----------- ----------- ------------
Richard C. Norris 2001 135,500 - 252,799 5,146 8,718
Vice President - Finance, 2000 129,833 28,600 48,627 11,412 8,290
Secretary and Treasurer 1999 122,208 51,300 52,143 12,694 7,682
-------------------------------- --------- ----------- ----------- ----------- ----------- ------------
Milam Randolph Pharo 2001 139,993 5,000 174,219 5,350 7,375
Vice President - Land and 2000 133,167 35,000 9,690 11,754 7,371
Legal 1999 127,000 47,625 31,250 12,990 7,017
-------------------------------- --------- ----------- ----------- ----------- ----------- ------------
Douglas W. York 2001 145,000 - 151,706 11,436 7,469
Vice President -Acquisitions 2000 134,667 52,000 6,598 11,968 7,380
and Engineering 1999 120,083 60,042 66,000 13,090 7,555
-------------------------------- --------- ----------- ----------- ----------- ----------- ------------
------------
(1) Amounts consist of payments under the Net Profits Interest Bonus Plan.
Amounts paid for 2001 were higher due to payouts from six new net profit
pools granted in prior years, including the pool with the significant
acquisitions in 1999. See "Report of the Compensation Committee on
Executive Compensation" for a description of this plan.
(2) Amounts consist of the Company's contribution to the 401(k) Savings Plan,
holiday bonus and other miscellaneous cash payments.
9
Stock options granted to the Company's five highest compensated executive
officers during 2001 are set forth in the following two tables.
2001 OPTION GRANTS
---------------------------------------------------------------------------------------------------------------------
Individual Grants
---------------------------------------------------------------------------------------
Potential realizable value
Percent of at assumed annual rates of
total stock price appreciation
options granted for option term
Number of to employees Exercise price Expiration -----------------------------
NAME Options Granted in 2001 per share date 5% 10%
--------------------- ----------------- ----------------- ---------------- ------------ -------------- --------------
Mark A. Hellerstein 10,883 (1) 3.0% $15.93 09/30/11 $109,029 $ 276,301
10,883 (2) 3.0% $21.19 09/30/11 145,030 367,534
--------------------- ----------------- ----------------- ---------------- ------------ -------------- --------------
Ronald D. Boone 8,743 (1) 2.4% $15.93 09/30/11 87,590 221,970
8,743 (2) 2.4% $21.19 09/30/11 116,512 295,263
--------------------- ----------------- ----------------- ---------------- ------------ -------------- --------------
Richard C. Norris 2,573 (1) .70% $15.93 09/30/11 25,777 65,324
2,573 (2) .70% $21.19 09/30/11 34,289 86,894
--------------------- ----------------- ----------------- ---------------- ------------ -------------- --------------
Milam Randolph Pharo 2,675 (1) .70% $15.93 09/30/11 26,799 67,914
2,675 (2) .70% $21.19 09/30/11 35,648 90,339
--------------------- ----------------- ----------------- ---------------- ------------ -------------- --------------
Douglas W. York 5,718 (1) 1.6% $15.93 09/30/11 57,285 145,170
5,718 (2) 1.6% $21.19 09/30/11 76,200 193,105
--------------------- ----------------- ----------------- ---------------- ------------ -------------- --------------
------------
(1) Stock options granted effective September 30, 2001 pursuant to the
Company's Stock Option Plan as described on page 11 of this proxy
statement.
(2) Stock options granted effective December 31, 2001 pursuant to the
Company's Stock Option Plan as described on page 11 of this proxy
statement.
AGGREGATED OPTION/SAR EXERCISES IN 2001 AND
DECEMBER 31, 2001 OPTION/SAR VALUE
------------------------------------------------------------------------------------------------------------------
Number of Value of unexercised
unexercised options/SARs in-the-money
held at options/SARs at
Shares December 31, 2001 December 31, 2001 (1)
acquired Value ------------------------------- -------------------------------
Name on exercise realized Exercisable Unexercisable Exercisable Unexercisable
--------------------- --------------- ------------ --------------- --------------- --------------- ---------------
Mark A. Hellerstein 45,079 $479,199 66,239 48,939 $ 497,256 $ 151,973
--------------------- --------------- ------------ --------------- --------------- -------------------------------
Ronald D. Boone - 45,290 73,393 28,413 621,539 81,920
--------------------- --------------- ------------ --------------- --------------- -------------------------------
Richard C. Norris - 27,043 42,214 12,740 319,014 38,131
--------------------- --------------- ------------ --------------- --------------- -------------------------------
Milam Randolph Pharo - 25,312 32,841 13,139 266,809 39,188
--------------------- --------------- ------------ --------------- --------------- -------------------------------
Douglas W. York - - 23,141 17,835 146,095 51,412
--------------------- --------------- ------------ --------------- --------------- -------------------------------
--------------
(1) Amounts include final payments in satisfaction of the remaining rights
under the discontinued SAR plan, pursuant to the terms of such plan.
(2) On December 31, 2001, the last reported sales price of St. Mary common
stock as quoted on the Nasdaq National Market System was $21.19.
10
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The compensation committee of the board of directors administers St. Mary's
executive compensation programs. After consideration of the compensation
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 9. The compensation committee is
responsible for all other elements of executive compensation, including cash
bonuses, stock options, and the Net Profits Interest Bonus Plan. The
compensation 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
compensation 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:
o Attract and retain talented management personnel.
o Encourage management to obtain superior returns for St. Mary's
stockholders.
o 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 compensation committee, with the assistance of external consultants,
determines the salary ranges for various positions based on survey data from the
Company's industry peer group. The compensation committee then reviews
management's recommendations for executive salaries and the performance
summaries on which they are based. The compensation committee makes final salary
recommendations to the full board based on experience, sustained performance,
and comparison to peers inside and outside the Company.
Incentive Compensation
St. Mary has established three incentive compensation plans, which have the
potential to increase annual compensation if the economic performance of the
Company and its employees so warrants. These plans have certain specific
objectives.
1. The Net Profits Interest Bonus Plan is designed to reward the personal
contributions made by various management personnel to St. Mary's financial
success. Plan participants share in the net profits after payout to St. Mary
derived from all oil and gas activity for a calendar year 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, the
executive vice president and other vice presidents as deemed appropriate by the
compensation committee 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 St.
Mary for long-term increases in the value of St. Mary's stock. The Stock Option
Plan focuses on appreciation of the market price of St. Mary's stock up to a
11
ten-year period and is designed to encourage management's concern for long-term
appreciation of the stockholders' interest. 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. In
addition, an Incentive Stock Option Plan ("ISO Plan") has been established as a
companion option plan with the Stock Option Plan. The ISO Plan is an alternative
to the above-described Stock Option Plan for an equal number of shares 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
will be either: a.) non-tax qualified options granted under the above-described
Stock Option Plan, or b.) incentive stock options granted under the ISO Plan.
3. St. Mary 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 the compensation committee 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.
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.
Hellerstein's base salary in 2001 increased $5,000 or 2% over 2000. His total
bonuses increased by approximately $573,000 in 2001 compared with 2000 as a
result of the payout of six new net profit pools granted in prior years and the
final payout from the discontinued SAR plan. Mr. Hellerstein was not granted any
bonus under the cash bonus plan for 2001 since St. Mary fell short on some of
its corporate goals. Total reserves grew by 9% and St. Mary replaced 166% of its
2001 production, both measures below targeted levels. In addition the net asset
value per share declined in 2001. To further tie compensation to stock price
appreciation, Mr. Hellerstein and several other key executives were granted
stock options in 2001 using two times the formula as that used for all other
employees.
Conclusion
St. Mary'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.
Arend J. Sandbulte, Chairman
Larry W. Bickle
William J. Gardiner
April 5, 2002
12
RETIREMENT PLANS
Pension Plan
The Company's Pension Plan is a qualified, non-contributory defined benefit
plan which is available to substantially all employees. This plan was amended in
1994 to conform with the changes required by the Tax Reform Act of 1986 and to
reduce the plan formula. The Company also has a supplemental pension plan for
certain executive officers to provide for benefits in excess of Internal Revenue
Code limits.
The 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 that officer's average of the base salaries (excluding
bonus) shown in the Summary Compensation Table.
The supplemental plan provides executives hired before 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.
The following table shows the estimated maximum annual benefits payable
upon retirement at age 65 as a straight life annuity to participants in the
pension plans for the indicated levels of average annual compensation and years
of service.
------------------------ -------------------------- --------------------------
Estimated annual pension Estimated annual pension
benefits for executives benefits for executives
hired before 1995 with > hired after 1994 with >
Remuneration 15 years of service 25 years of service
------------------------ -------------------------- --------------------------
$100,000 $ 63,680 $ 35,000
------------------------ -------------------------- --------------------------
150,000 102,180 52,500
------------------------ -------------------------- --------------------------
200,000 140,680 70,000
------------------------ -------------------------- --------------------------
250,000 179,180 87,500
------------------------ ------------------------- --------------------------
300,000 217,680 105,000
------------------------ -------------------------- --------------------------
350,000 256,180 122,500
------------------------ -------------------------- --------------------------
As of December 31, 2001, the named executive officers have the following
years of credited service:
Mark A. Hellerstein 10
Ronald D. Boone 11
Richard C. Norris 19
Milam Randolph Pharo 6
Douglas W. York 5
13
401(k) Plan
The Company's 401(k) Profit Sharing Plan is a defined contribution pension
plan subject to 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 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. Company contributions vest over an employee's first five years of
employment.
PERFORMANCE GRAPH
The following performance graph compares the cumulative total stockholder
return on St. Mary's common stock for the period December 31, 1996 to December
31, 2001 with the cumulative total return of the Standard Industrial
Classification Code for Crude Petroleum and Natural Gas and the Standard &
Poor's 500 Stock 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 HEARE]
Assumes $100 invested on December 31, 1996 in St. Mary Land & Exploration
Company, SIC Code Index for Crude Petroleum and Natural Gas and S&P 500
Stock Index.
*Total return assumes reinvestment of dividends.
14
EMPLOYMENT AGREEMENTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
On September 1, 1991, St. Mary entered into an employment agreement with
Mark A. Hellerstein. His current salary is $295,000 per year. Compensation is
reviewed annually. Mr. Hellerstein participates in St. Mary's benefit plans and
is entitled to bonuses and incentive compensation as determined by the board of
directors. The agreement is terminable at any time upon 30 days' notice by
either party. Upon termination of the agreement by St. Mary for any reason
whatsoever (other than death, disability or misconduct by Mr. Hellerstein), St.
Mary is obligated to continue to pay his compensation, including insurance
benefits, for a period of one year.
St. Mary has established a change in control executive severance policy and
entered into change of control severance agreements where officers of St. Mary,
including the officers named in the Summary Compensation Table, will receive
severance payments in the event a change in control of the Company results in
the voluntary or involuntary termination of their employment. The severance
payments equal two and one-half years annual base salary depending on the length
of time employment continues after the change in control. In addition, all
insurance and fringe benefits will be provided for a period of one year.
A change in control is defined as (i) an acquisition of more than fifty
percent of the common stock or assets of the Company in a reorganization, merger
or consolidation of the Company or (ii) a change in more than fifty percent of
the composition of the board of directors of the Company other than as a result
of the election of new members of the board of directors by a vote of the
incumbent members of the board of directors or by stockholders of the Company
pursuant to the recommendation of the incumbent members of the board of
directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description of transactions entered into between St.
Mary and certain of its officers and directors during the last fiscal year. Some
of these transactions will continue in effect and may result in conflicts of
interest between St. Mary and these individuals. Although these persons may owe
fiduciary duties to St. Mary and its stockholders, we cannot assure you that
conflicts of interest will always be resolved in favor of St. Mary.
As a result of their prior employment with another company with which St.
Mary engaged in a number of transactions, Ronald D. Boone, the Executive Vice
President and Chief Operating Officer and a director of St. Mary, and two other
vice presidents of St. Mary own working interests and royalty interests in many
of the Company's properties which were earned as part of the prior employer's
benefit programs. Those persons have no royalty participation in any new St.
Mary 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 prior employment. Although Mr.
Boone does not manage these corporations, he may participate in any investment
decisions made by them. The board of directors has approved Mr. Boone's
involvement in Princeton Resources and Baron Oil.
15
St. Mary'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 St. Mary is
interested in pursuing such opportunity and is financially or otherwise able to
pursue the opportunity. Moreover, no officer or employee of St. Mary may pursue
for his own account an oil and gas opportunity unless (a) with respect to an
officer of St. Mary, the interest has been approved by the board of directors
and (b) with respect to a non-officer of St. Mary, such interest of the employee
has been approved by a senior officer of St. Mary 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 St. Mary is
not at that time engaged in any present or pending transaction with the other
company.
OTHER MATTERS TO BE VOTED ON
Proposal to Amend the Certificate of Incorporation to Authorize the Issuance of
--------------------------------------------------------------------------------
up to a Total of 5,000,000 Shares of Preferred Stock
----------------------------------------------------
St. Mary's certificate of incorporation currently authorizes St. Mary
to issue up to a total of 100,000,000 shares of common stock. There were
27,808,151 shares of common stock outstanding as of March 31, 2002.
On March 21, 2002, the board of directors approved an amendment to the
certificate of incorporation, subject to approval by the stockholders, to
authorize the issuance of up to a total of 5,000,000 shares of preferred stock
with such powers, preferences, rights and limitations as the board of directors
may designate from time to time. The full text of the amendment is contained in
the proposed Certificate of Amendment attached to this proxy statement as Annex
A, and the following description is qualified in its entirety by reference
thereto.
While St. Mary has no present intention of issuing shares of preferred
stock, the board of directors believes that having shares of preferred stock
authorized for issuance under the certificate of incorporation will provide
additional financial flexibility from the possible future issuances of preferred
stock for use in property acquisitions or for use in raising additional capital.
Any future issuances will remain subject to separate stockholder approval to the
extent required under Delaware corporate law and/or the Nasdaq National Market
listing standards.
Although future issuances of preferred stock will be dilutive to
existing stockholders with respect to their proportionate ownership of St. Mary,
any issuances for cash will be made for fair value, and any issuances for
property acquisitions will also be made for fair value.
Description of the Preferred Stock
The amendment to the certificate of incorporation will authorize the
board of directors from time to time to divide the preferred stock into series
and to designate for each series its respective rights and preferences,
including any of the following:
o the rate of dividends and whether dividends are cumulative or
have a preference over the common stock in right of payment;
o the terms and conditions upon which shares may be redeemed and
the redemption price;
16
o sinking fund provisions for the redemption of shares;
o the amount payable in respect of each share upon a voluntary or
involuntary liquidation of St. May;
o the terms and conditions upon which shares may be converted
into other securities of St. Mary, including common stock;
o limitations and restrictions on payment of dividends or other
distributions on, or redemptions of, other classes of stock of St.
Mary junior to such series, including the common stock;
o conditions and restrictions on the creation of indebtedness or
the issuance of other senior classes of stock;
o voting rights; and
o the number of shares contained in such series.
Issuances of preferred stock could be made without further action of
the stockholders, unless such action were required by applicable law or the
rules of the Nasdaq National Market System or any other stock exchange on which
St. Mary's securities may then be listed or traded. Depending on the rights and
preferences designated for any particular series, issuances of preferred stock
could have the effect of diluting stockholders' equity, earnings per share and
voting rights attributable to the common stock.
Anti-Takeover Effects of the Proposed Amendment
Although the board of directors has no current intention of doing so,
St. Mary could issue a series of preferred stock that could, depending on the
terms of such series, impede the completion of a merger, tender offer or other
takeover attempt. The board of directors will make any determination to issue
shares of preferred stock based on its judgment at the time as to the best
interests of St. Mary and its stockholders. The board of directors, in so
acting, could issue preferred stock having terms that could discourage an
acquisition attempt by which an acquiror may be able to change the composition
of the board of directors, including a tender offer or other transaction that
some, or a majority, of St. Mary's stockholders might believe to be in their
best interests or in which stockholders might receive a premium for their stock
over the then current market price of such stock. The board of directors is not
aware of any current proposal or effort to acquire control of St. Mary.
While the proposed amendment may have anti-takeover effects, the board
of directors believes that the financial flexibility provided by the amendment
outweighs any disadvantages. To the extent that the proposed amendment may have
anti-takeover effects, the amendment may encourage persons seeking to acquire
St. Mary to negotiate directly with the board of directors, enabling the board
of directors to consider any proposed acquisition in a manner that best serves
the interests of the stockholders.
Since the board of directors believes that the proposed amendment to
the certificate of incorporation to authorize the issuance of up to a total of
5,000,000 shares of preferred stock with such powers, preferences, rights and
limitations as the board of directors may designate from time to time will
17
provide St. Mary with additional financial flexibility, the board of directors
recommends that stockholders vote "For" approval of the amendment to the
certificate of incorporation.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under U.S. securities laws, directors, executive officers and persons
holding more than 10% of St. Mary common stock must report their initial
ownership of the common stock and any changes in that ownership in reports which
must be filed with the SEC and St. Mary. The SEC has designated specific
deadlines for these reports and St. Mary must identify in this proxy statement
those persons who did not file these reports when due.
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 for 2001 by Section 16(a) under the
Securities Exchange Act of 1934.
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP has served as St. Mary's independent accountants since
1997. However, due to the widely reported recent developments concerning Arthur
Andersen LLP stemming from the collapse of Enron, the board of directors has not
yet selected the independent public accountants to audit the financial
statements of St. Mary for its 2002 fiscal year. As part of its process for
selecting the independant public accountants for 2002, the audit committee and
the board of directors will closely monitor the current developments concerning
Arthur Andersen LLP.
To the knowledge of management, neither Arthur Andersen LLP nor any of its
members has any direct or material indirect financial interest in St. Mary nor
any connection with St. Mary in any capacity other than as independent public
accountants. A representative of Arthur Andersen LLP is expected to be present
at the annual meeting and will have an opportunity to make a statement if he
desires to do so and to respond to appropriate questions.
FUTURE STOCKHOLDER PROPOSALS
St. Mary must receive any St. Mary stockholder proposal for the annual
meeting of stockholders in 2003 before November 1, 2002 for the proposal to be
included in the St. Mary proxy statement and form of proxy for that meeting.
St. Mary's by-laws require that advance written notice in proper form of
stockholder proposals for matters to be brought before an annual stockholders
meeting be received by the Secretary of St. Mary not less than 75 days nor more
than 105 days before the first anniversary date of the immediately preceding
annual stockholders meeting. Accordingly, notice of stockholder proposals for
the 2003 annual meeting must be received by St. Mary between February 6, 2003
and March 8, 2003.
18
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 use their discretionary voting authority under the
proxy to vote the proxy in accordance with their best judgment on those matters.
By Order of the Board of Directors
Richard C. Norris
Secretary
April 12, 2002
19
ANNEX A ANNEX A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
St. Mary Land & Exploration Company, a corporation organized and
existing under and by virtue of the laws of the General Corporation Law of the
State of Delaware (the "Corporation"), DOES HEREBY CERTIFY:
1. That at a meeting of the Board of Directors of the Corporation, a
resolution was duly adopted setting forth a proposed amendment to the
Certificate of Incorporation of the Corporation, as restated and amended,
declaring such amendment to be advisable and calling for a vote of the
stockholders of the Corporation on such amendment at the annual meeting of the
stockholders of the Corporation on May 21, 2002. The resolution setting forth
the proposed amendment is as follows:
RESOLVED, that Article Fourth of the Certificate of
Incorporation of the Corporation, as restated and amended,
shall be amended in its entirety to read as follows:
FOURTH: The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is
105,000,000 shares, consisting of (a) 5,000,000 shares of
Preferred Stock, $.01 par value per share (the "Preferred
Stock"), and (b) 100,000,000 shares of Common Stock, $.01 par
value per share (the "Common Stock").
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the shares of each class of stock
of the Corporation are as follows:
PREFERRED STOCK
i. Issuance. The Preferred Stock may be issued from time to time in
--------
one or more series of any number of shares, provided that the aggregate number
of shares issued and not canceled of any and all such series shall not exceed
5,000,000 shares.
ii. Authority of the Board of Directors to Authorize Series. Authority
-------------------------------------------------------
is hereby vested in the Board of Directors from time to time to authorize the
issuance of one or more series of Preferred Stock, and in connection with the
creation of such series to fix by resolution or resolutions providing for the
issuance of shares thereof the designations, powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, of such series in respect of the matters
set forth as follows:
(1) The maximum number of shares to constitute such series and
the distinctive designation thereof and the stated value thereof if
different than the par value thereof;
20
(2) The dividend rate, if any, on the shares of such series,
the conditions and dates upon which such dividends shall be payable,
the preference or relation which such dividends shall bear to the
dividends payable on any other class or classes or on any other series
of capital stock, and whether such dividends shall be cumulative or
non-cumulative;
(3) Whether the shares of such series shall be subject to
redemption by the Corporation, and, if made subject to redemption, the
times, prices and other terms and conditions of such redemption;
(4) Whether or not the shares of such series shall be subject
to the operation of a retirement or sinking fund, and, if so, the
extent to and manner in which any such retirement or sinking fund shall
be applied to the purchase or redemption of the shares of such series
for retirement or to other corporate purposes and the terms and
provisions relative to the operation thereof;
(5) The rights of the holders of shares of such series upon
the liquidation, dissolution or winding up of the Corporation;
(6) Whether or not the shares of such series shall be
convertible into, or exchangeable for, shares of stock of any other
class or classes, or of any other series of the same class, and if so
convertible or exchangeable, the price or prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting the same
and any other terms or conditions of conversion or exchange;
(7) The limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the Corporation of, the
Common Stock or any other class or classes of stock of the Corporation
ranking junior to the shares of such series either as to dividends or
upon liquidation, dissolution or winding up;
(8) The conditions or restrictions, if any, upon the creation
of indebtedness of the Corporation or upon the issuance of any
additional stock (including additional shares of such series or of any
other series or of any other class) ranking on a parity with or prior
to the shares of such series either as to dividends or upon
liquidation, dissolution or winding up;
(9) Whether the shares of such series shall have voting
rights, in addition to any voting rights provided by law, and, if so,
the terms of such voting rights; and
(10) Any other powers, preferences and relative,
participating, optional or other special rights and any qualifications,
limitations or restrictions thereof as shall not be inconsistent with
this Article Fourth.
iii. Shares of Each Series Identical. All shares of any one series of
-------------------------------
Preferred Stock shall be identical with each other in all respects, except that
shares of any one series issued at different times may differ as to the dates
from which dividends, if any, thereon shall be cumulative. All series shall rank
21
equally and be identical in all respects, except as permitted by the provisions
of this Article Fourth.
COMMON STOCK
All shares of Common Stock shall be identical and shall entitle the
holders thereof to the same rights and privileges.
i. Dividends. Subject to the provisions of law and the rights of the
---------
Preferred Stock then outstanding having a preference as to dividends over the
Common Stock, dividends may be paid on the Common Stock at such times and in
such amounts as the Board of Directors shall determine. When and as dividends
are declared upon the Common Stock, whether payable in cash, in property or in
shares of stock of the Corporation, the holders of Common Stock shall be
entitled to share equally in such dividends.
ii. Voting Rights. Each holder of Common Stock shall be entitled to
-------------
one vote per share held.
iii. Preferred Stock. The Common Stock is subject to all the powers,
---------------
rights, privileges, preferences and priorities of the Preferred Stock as are
stated and expressed herein and as shall be stated and expressed in any
resolution or resolutions of the Board of Directors pursuant to authority
expressly granted to and vested in it by the provisions of this Article Fourth.
iv. Liquidation. In the event of any liquidation, dissolution or
-----------
winding up of the Corporation, whether voluntary or involuntary, after payment
shall have been made to holders of Preferred Stock of any preferential amounts
to which they shall respectively be entitled as stated and expressed in any
resolution or resolutions of the Board of Directors pursuant to authority
expressly granted to and vested in it by the provisions of this Article Fourth,
the holders of Common Stock shall be entitled to share ratably according to the
number of shares of Common Stock held by them in all remaining assets of the
Corporation available for distribution to its stockholders.
22
ANNEX B
ANNEX B
St. Mary Land & Exploration Company
Charter of the Audit Committee of the Board of Directors
I. Audit Committee Purpose
The Audit Committee is appointed by the board of directors to assist
the board in fulfilling its oversight responsibilities. The Audit
Committee's primary duties and responsibilities, as delegated by the
board of directors, are to:
o Monitor the integrity of the Company's financial reporting process
and systems of internal controls regarding finance, accounting,
and legal and regulatory compliance. The Audit Committee will
recommend to the board of directors when corrective action is
necessary.
o Monitor the independence and performance of the Company's
independent auditors.
o Provide an avenue of communication among the independent auditors,
management, and the board of directors.
o Report regularly to the board of directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfill its responsibilities, and it has direct access
to the independent auditors as well as anyone in the organization. The
Audit Committee has the authority to retain, at the Company's expense,
special legal, accounting, or other consultants or experts it deems
necessary to advise the Committee in the performance of its duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the independence and financial
literacy requirements of the Nasdaq National Market listing standards.
The Audit Committee shall be comprised of at least three directors as
determined by the board, each of whom shall be an independent
nonexecutive director without any relationship which, in the opinion of
the board, would interfere with the exercise of his or her independent
judgment in carrying out the responsibilities of a director. All
members of the Committee shall have a basic understanding of finance
and accounting and be able to read and understand fundamental financial
statements, and at least one member of the Committee shall have
experience or background in finance or accounting which results in that
member's financial sophistication.
Audit Committee members shall be appointed by the board. If an audit
committee Chair is not designated or present, the members of the
Committee may designate a Chair by majority vote of the Committee
membership.
The Committee shall meet at least four times annually, or more
frequently as circumstances dictate. The Audit Committee Chair shall
approve an agenda in advance of each meeting. As circumstances dictate
but at least twice annually, the Committee should meet privately in
executive session with management, the independent auditors, and as a
committee to discuss any matters that the Committee or any of these
groups believe should be discussed. In addition, the Committee should
communicate with management and the independent auditors quarterly to
review the Company's financial statements and significant findings
based upon the auditors' review procedures.
23
III. Audit Committee Responsibilities and Duties
Review Procedures
-----------------
1. Review and reassess the adequacy of this Charter at least
annually. Submit the Charter to the board of directors for
approval and include the document in the proxy statement for the
election of directors at least once every three years in
accordance with SEC regulations.
2. Review the Company's annual audited financial statements prior to
filing with the SEC. Review should include discussion with
management and independent auditors of significant issues
regarding accounting principles, practices, and judgments.
3. In consultation with management and the independent auditors,
consider the integrity of the Company's financial reporting
processes and internal accounting controls. Discuss significant
financial risk exposures and the steps management has taken to
monitor, control, and report such exposures. Review significant
findings prepared by the independent auditors, including the
status of previous recommendations, together with management's
responses.
4. Review with financial management and the independent auditors the
Company's quarterly financial results prior to the release of
earnings. Discuss any significant changes to the Company's
accounting principles and any items required to be communicated by
the independent auditors to the Committee in accordance with
Statement of Auditing Standards ("SAS") No. 61, Communication with
Audit Committees, as amended (see item 9).
Independent Auditors
--------------------
5. The independent auditors are accountable to the Audit Committee
and the board of directors. The Audit Committee shall review and
evaluate the independence and performance of the auditors and
annually recommend to the board of directors the appointment of
the independent auditors or approve any replacement of auditors
when circumstances warrant.
6. Approve the fees and other significant compensation to be paid to
the independent auditors. Review and approve requests for
significant management consulting engagements to be performed by
the independent auditors' firm and be advised of any other
significant study undertaken at the request of management that is
beyond the scope of the audit engagement letter.
7. On at least an annual basis, the Committee should review and
discuss with the independent auditors the auditors' independence
and all significant services performed for and relationships they
have with the Company that could bear on the auditors'
independence, and ensure that the Committee has received from the
auditors the formal written statement delineating all
relationships between the auditor and the Company and the letter
confirming that in the auditors' professional judgment they are
independent of the Company, as required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit
Committees. The Committee shall take, or recommend that the board
of directors take, appropriate action to oversee the independence
of the auditors.
8. Review the independent auditors' engagement letter a nd audit plan
- discuss scope, staffing, locations, reliance upon management,
and general audit approach.
9. Prior to releasing year-end earnings, discuss the results of the
audit with the independent auditors. Discuss the matters required
to be communicated by auditors to audit committees in accordance
with SAS No. 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied
in its financial reporting.
24
Legal Compliance
----------------
11. On at least an annual basis, review with the Company's general
counsel any legal matters that could have a significant impact on
the Company's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from
regulators or governmental agencies.
Other Audit Committee Responsibilities
--------------------------------------
12. Based on the review and discussion of the audited financial
statements with management and the discussion with the independent
auditors of the matters required to be discussed by SAS No. 61 and
the independent auditors' independence, recommend to the board of
directors whether the audited financial statements should be
included in the Company's Annual R eport on Form 10-K for filing
with the SEC. Prepare the report required by SEC rules to be
included in the Company's annual proxy statement.
13. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the
Board deems necessary or appropriate.
14. Maintain minutes of meetings and periodically report to the board
of directors on significant results of the foregoing activities.
While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is not the duty of the Audit Committee to plan or
conduct audits or to determine that the Company's financial statements
are complete and accurate and are in accordance with generally accepted
accounting principles. That is the responsibility of management and the
independent auditors. Nor is it the duty of the Audit Committee to
conduct investigations, or to ensure compliance with laws and
regulations.
25
[Front]
PROXY ST. MARY LAND & EXPLORATION COMPANY PROXY
1776 Lincoln Street, Suite 1100
Denver, Colorado 80203
This Proxy is Solicited on Behalf of the Board of Directors
For the Annual Meeting of Stockholders on May 22, 2002
The undersigned hereby appoints Mark A. Hellerstein and Richard C. Norris,
or either of them, each with the power to appoint his substitute, as proxies for
the undersigned to vote all shares of St. Mary Land & Exploration Company
common stock which the undersigned is entitled to vote at the Annual Meeting of
Stockholders to be held on May 22, 2002, and at any reconvened meeting after any
adjournment thereof, as directed on the matter referred to below and at their
discretion on any other matters that may properly be presented at the meeting.
1. ELECTION OF DIRECTORS.
Management has nominated the following eleven persons to stand for election
as directors. The St. Mary board of directors recommends a vote "For" all of the
nominees. As of the date of the accompanying proxy statement no one has been
nominated to serve as director other than the nominees by management.
FOR all nominees listed below
(except as marked to the contrary below)
WITHHOLD authority to vote
for all nominees listed below
Larry W. Bickle Thomas E. Congdon Robert L. Nance
Barbara M. Baumann William J. Gardiner Arend J. Sandbulte
Ronald D. Boone Mark A. Hellerstein John M. Seidl
(INSTRUCTIONS: Mark only one box. To withhold authority to vote for any
individual nominee, write that nominee's name in the following space:
-----------------------------------------------------------------------------) )
2. AMENDMENT TO CERTIFICATE OF INCORPORATION TO AUTHORIZE THE ISSUANCE OF UP TO
A TOTAL OF 5,000,000 SHARES OF PREFERRED STOCK.
The proposal to amend St. Mary's certificate of incorporation to authorize
the issuance of up to a total of 5,000,000 shares of preferred stock with such
powers, preferences, rights and limitations as the board of directors may
designate from time to time.
FOR AGAINST ABSTAIN
[Back]
This proxy when properly executed will be voted in the manner directed by
the undersigned stockholder.
If this proxy is properly executed but no voting direction is given, this
proxy will be voted "For" all director nominees listed on this proxy and the
amendment to the certificate of incorporation to authorize the issuance of up to
a total of 5,000,000 shares of preferred stock.
This proxy also confers discretionary authority to the proxies to vote on
any other matters that may properly be presented at the meeting. As of the date
of the accompanying proxy statement, St. Mary management did not know of any
other matters to be presented at the meeting. If any other matters are properly
presented at the meeting, this proxy will be voted in accordance with the
recommendations of St. Mary management.
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership or limited liability company, please sign
in such name by an authorized person.
Please complete, date and sign this proxy card and return it promptly in
the accompanying envelope.
Dated: , 2002
--------------------
--------------------------------
Signature
--------------------------------
Signature (if held jointly)